Preparation Key To Prospering During A Recession

Staff - November 6, 2018

Predicting when the economy will tip over into a recession is difficult, but 10 years into this recovery, it may be overdue. While forecasting a recession is tricky, management consulting firm Bain & Company suggests businesses can ride out or even prosper in a recession with the right preparation.

Company research shows that “the eventual winners in any downturn are companies that aggressively captured the opportunities unique to recessions.” Its data also highlights that those companies also reap larger rewards during economic expansion. It notes, “These periods of tumult can be an important opportunity for strategic repositioning and very often prove to be inflection points, shifting profit pools and producing a new industry order.”

Using the performance of winners and losers in the 2003 – 2016 time period—winners averaging compound annual growth rates of 17 percent and losers four percent—Bain & Company’s data showed that while both groups experienced strong growth before the 2007-2009 global recession, winners continued to grow while losers weakened and the gap between the two grew wider still during the recovery.

Bain & Company attributes the diverging performances to preparation and strategy alignment before the downturn: “The CEOs and boards of the winners in our study had already done the hard work of defining their core competitive advantages and prioritizing the three or four initiatives that were central to executing strategy. Then, as the recession approached, winning teams laid careful plans for boldly taking advantage of opportunities that might develop under different scenarios. They doubled down on their core initiatives to maintain momentum into the storm. They created strategic wish lists of potential acquisitions and primed their M&A engines. They considered which stars to recruit as others faltered. And they made the tough decisions to streamline the business and trim noncore activities to raise the ‘currency’ to pay for their bold ambitions.”

The losers, on the other hand, did not have contingency plans and were too defensive in reacting to the recession. They made deep cuts to their operations and lost momentum, which limited their ability to regain it during the recovery.